MINUTES OF THE meeting
of the
SENATE FINANCE/ASSEMBLY WAYS AND MEANS
JOINT SUBCOMMITTEE ON GENERAL GOVERNMENT
Seventy-First Session
March 30, 2001
The Joint Subcommittee on General Government was called to order at 8:13 a.m. on Friday, March 30, 2001. Senator William R. O’Donnell, Chairman, presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
SENATE COMMITTEE MEMBERS PRESENT:
Senator William R. O’Donnell, Chairman
Senator Lawrence E. Jacobsen
Senator Joseph M. Neal, Jr.
ASSEMBLY COMMITTEE MEMBERS PRESENT:
Mrs. Vonne Chowning
Ms. Chris Giunchigliani
Mr. Bob Beers
Mr. Lynn Hettrick
Ms. Sheila Leslie
Mr. David Parks
COMMITTEE MEMBERS ABSENT:
None
STAFF MEMBERS PRESENT:
Gary Ghiggeri, Fiscal Analyst (Senate)
Steve Abba, Principal Deputy Fiscal Analyst (Assembly)
Georgia Rohrs, Program Analyst
Mike Chapman, Program Analyst
Carol Thomsen, Committee Secretary
Senator O’Donnell indicated the subcommittee would commence with review of the budget for the Public Employees’ Benefits Program (PEBP).
Senator O’Donnell reminded the committee that a brief hearing regarding the PEBP had been held on February 29, 2001, when it was determined that pertinent information had not been provided to Legislative Counsel Bureau (LCB) Fiscal Division staff in a timely manner. Therefore, staff had insufficient time to assimilate the information necessary to continue the hearing, and it was held in abeyance until staff was able to reconcile the account. Senator O’Donnell advised the committee that there were some questions regarding the account, which would be addressed during the budget presentation.
PUBLIC EMPLOYEES’ BENEFITS PROGRAM – BUDGET PAGE PEBP-1
Doug Perry, Accounting Officer, PEBP, explained that the PEBP had made tremendous strides in the year 2000. The mission of the PEBP was to design, deliver, and manage a quality, comprehensive health care program with reasonable cost-sharing for all participating public employees, retirees, and independents, in a cost effective, fiscally responsible, and actuarially sound manner that would ensure long‑term viability of the PEBP.
According to Mr. Perry, the executive staff had worked diligently toward achieving that mission, and had set five major goals for the year 2000, by which the PEBP would:
Mr. Perry noted that the average age of the PEBP’s work force was 46, and as “Baby Boomers” continued to age, the cost and volume of care would increase, with retirement just around the corner. In spite of those facts, and a volatile health care market with inflation trends ranging from 10 percent to 14 percent nationally, Mr. Perry stated the PEBP underwent a plan design change that improved benefits in many ways. Those accomplishments were; (1) improvement of the wellness benefit to $300, not subject to deductible; (2) deductible lowered to $250 annually and $500 per family; and, (3) lower out-of-pocket expenses set at $2,250 maximum, so that participants reached the 100 percent benefit level more quickly each year. Mr. Perry explained that the PEBP also offered extended and comprehensive Preferred Provider Organization (PPO) options and a national PPO.
Mr. Perry remarked that in early October 2000 the PEBP, via the Request for Proposal (RFP) process, selected an outsource software package to support the open enrollment process, billing, and eligibility. Health Axis provided, in conjunction with UICI Administrators, the software and manpower to key forms and create a new database. Per Mr. Perry, that process worked hand-in-hand with scanning technology, which the PEBP had installed in August and September 2000. With the assistance of the Department of Information Technology (DoIT), the technology established a solid framework which allowed the PEBP to electronically interface with vendors and pay centers. Mr. Perry reported that eligibility, billing, and reconciliation could be accomplished effectively and in a timely manner on a monthly basis. The project had required tremendous effort on the part of all staff within the PEBP, and Mr. Perry noted that the outcome, accomplishment, teamwork, and persistence had been remarkable.
Mr. Perry testified that the process must continue, and tremendous focus had been placed on improved communication. The PEBP had implemented the state’s Capitol Complex phone system, and cross-trained its staff to provide better customer service. According to Mr. Perry, early in the year 2000, “town hall” meetings were conducted to gain insight from participants. Later in the year, benefit fairs were conducted, which provided a comprehensive benefit overview in preparation for open enrollment. The positive enrollment, which required all participants to respond, was necessary in order to build the new database, and to ensure that participants were aware of the new options. Mr. Perry explained the deadline was extended to ensure that all participants were provided a fair chance to return the paperwork, which resulted in the receipt of over 26,000 forms. Participants who did not return a form remained in the network under the same program as that chosen for benefit year 2000. Mr. Perry reported that the new Summary Plan Description had been mailed to all year 2001 enrollees in the Self-Funded Plan. The PEBP had conducted training for Self-Funded Plan participants to assist them in maximizing their benefits via better understanding of the plan. Mr. Perry noted the plan was a consumer, as were the participants, and it was the PEBP’s job to assist its participants, so they would be better consumers.
Mr. Perry indicated that the many requirements of the PEBP, state processes, and regulations had been met, and the regulations concerning the day-to-day functions of the PEBP had been implemented.
According to Mr. Perry, it had been, without a doubt, a challenging year for the staff, the board, and the PEBP. The PEBP’s interest had been geared toward the participants in the plan, and therefore, the plan’s longevity and stability. The PEBP had proudly stepped up to the challenge and effectively implemented the changes. Mr. Perry announced that the PEBP was a new organization, progressing in a new and positive direction. While it was a state program, Mr. Perry felt it was important to remind everyone that the PEBP contracted with many private vendors. In total, the PEBP contributed over $120 million per year to the state’s economy.
Mr. Perry informed the committee that included in Exhibit C was a copy of the proposed budget for the PEBP, and indicated the proposed state subsidy for active employees was $357.50 per month in FY2002, and $384.50 per month in FY2003. The legislatively-approved subsidy provided by the state in FY2001 was $368.75 per month for active employees. Mr. Perry indicated the proposed subsidy for state retirees was $202.34 per month in FY2002, and $217.85 per month in FY2003; the current subsidy for state retirees in FY2001 was $208.92.
Continuing, Mr. Perry remarked that when the budget was constructed, assumptions were made using growth rates provided by the PEBP’s actuary, The Segal Company, as follows:
Mr. Perry noted that the reserves built into the budget were conservative, and would be adequate, with the understanding that the PEBP relied on state funds as its insurance, should the conservative projections be inadequate. In the base budget, the PEBP requested that the state maintain funding of the current Wellness Program at $150,803 per year for basic consumer education for its participants. In an effort to move participants from patients to consumers, the PEBP felt that every dollar spent on the Wellness Program to educate plan participants would, in the long run, reduce the overall costs.
Mr. Perry stated the PEBP recommended a study to review compliance with federal regulations, as stipulated by Nevada Revised Statutes (NRS) 287.043, Section 2(g)(2). That review would focus on program compliance with state and federal laws, review of the oversight of the PEBP from a fiduciary perspective, review of substantive and procedural rights of participants and dependents, review of Internal Revenue Service (IRS) and Department of Labor (DOL) enforcement, and review of ongoing operations and quality assurance. The cost of the study would be $70,000 over the biennium (decision unit E‑225).
The benefits program also recommended continuation of the retiree health study, the purpose of which would be to explore potential solutions to delivering and funding future retiree health coverage, and Mr. Perry noted the study would be conducted in three phases. The first phase had been completed, and Mr. Perry pointed out that the conclusions from the Phase I report compiled by The Segal Company were included in Exhibit C. Mr. Perry then quoted a portion of the report, as follows:
The ratio of State active employees to State retirees in 2000 was roughly 3.23:1. Based on an assumed increase of 1.8 % in State employment level, assumed retirement and current retiree health participation levels, this ratio is estimated to be approaching 1.66:1 by 2020.
Projected health care inflation and changing active-to-retiree ratios suggest that, under the current environment, the State’s annual retiree costs will approximate $68,000,000, or $358 per active employee per month in 2010 and as much as $185,000,000 by 2020, or $806 per active employee per month.
The total present value of the State retiree health care liability over the next 20 years is $779,000,000.
The Public Employees’ Benefits Program was asking for initiation of Phase II and Phase III of the retiree health study, and Mr. Perry explained Phase II would address such issues as:
Mr. Perry explained that Phase III, Pre-funding Design and Implement, would be implemented if it were determined that pre-funding was desired and appropriate. That would entail development of design provisions, costs, administrative requirements, communication, and documentation. The cost of the two studies would be $60,000 over the biennium (decision unit E-225).
According to Mr. Perry, the PEBP would also seek funding for the purchase of audit software of $2,025 in FY2002, thereby enabling the PEBP to improve its quality control audits of outside vendors, which was extremely important. Maintenance costs would be $300 per year for FY2002‑03. A shredder was requested at a cost of $1,000 in FY2002, to handle participants’ personal and confidential records, as well as replacement computers and printers (decision unit E-225). The agency was scheduled to replace one printer in each year of the biennium, five personal computers (PCs) in FY2002, and six PCs in FY2003.
Continuing, Mr. Perry remarked that the agency would request consolidation of Budget Account 1368 into Budget Account 1338. While such action would cause no financial impact, Mr. Perry explained it would allow the agency to streamline and simplify the administration of the PEBP, as directed by the Governor. That recommendation did require legislation as presented by the Budget Division in decision unit E-900.
Mr. Perry noted that at the last scheduled appearance before the subcommittee, the PEBP was issued specific instructions regarding necessary action on its part. The PEBP was instructed to meet with LCB Fiscal Division staff and provide information as requested, and Mr. Perry reported that all information had been provided; the actuary had also met with LCB staff, as instructed. A representative of the actuary, Lew Emanuelson from The Segal Company, was present at the hearing. Per discussion with LCB fiscal staff, Mr. Perry noted that all aspects of the budget were reviewed with the executive staff and the actuary. As a result, the PEBP had refigured projected claim expenditures, retiree claims and premium levels, outside administrative costs, including HMOs, and data processing expenditures.
Mr. Perry indicated that since completion of the budget according to the Governor’s schedule in late 2000, improved information had been gleaned from the new eligibility system and the open enrollment process. That new information allowed the PEBP to increase the accuracy of its HMO and Self‑Funded Plan costs in the proposed budget. Mr. Perry reported the PEBP discovered that more people had chosen HMOs than originally anticipated, thereby creating an increase for FY2002 of $4,086,223 in outside administrative costs, which included HMO costs, and $4,438,375 in FY2003 (decision unit M-400).
The PEBP was also able to recalculate the amount of retiree premiums, subsidies, and claims, which Mr. Perry stated caused an increase in the amounts identified for retiree premiums for FY2002 of $7,394,616, and $10,383,130 in FY2003. Mr. Perry pointed out that a portion of that increase was caused by shifting and reclassification of premiums and claims from the mainstream employee area to the retiree area, in order to consolidate the budget’s special accounts for that purpose. The change also caused general insurance premium income to be reduced by $5,512,838 in FY2002, and by $6,343,732 in FY2003 (decision unit M-400).
Mr. Perry explained that during the same time period, the PEBP also accumulated more data regarding claims incurred in the year 2000. The revised information allowed the PEBP to recalculate the expected claim costs over the next biennium. The effect was a decrease in general self-funded claim costs of $8,822,398 for FY2002, and a decrease of $10,741,522 for FY2003. Mr. Perry stated that retiree claim costs were increased by $7,394,616 in FY2002, and by $10,383,130 in FY2003. According to Mr. Perry, those figures also included shifts where the PEBP had reclassified dollars from mainstream employee claims to retiree claims (decision unit M-400).
Mr. Perry noted that after review of the new budget with the agency’s information technology systems officer, it was discovered that some deleted costs thought to be associated with the PEBP’s Benefit Information System of Nevada (BISON) program, actually supported the PEBP’s current PC network, a key piece in the new eligibility program. The effect was an increase in data processing costs of $48,670 in FY2002 and $46,645 in FY2003 (decision unit M-400).
In conclusion, Mr. Perry stated the art and science of insurance was risk sharing, and there were no guarantees as to what the actual costs would be over the next biennium for the Public Employees’ Benefits Program, however, it was strongly believed that the current budget proposal created a fiscally responsible program, based on the best information currently available.
Senator O’Donnell stated that what he perceived as the “heart” of the problem was a $5 million to $6 million “hole” in the existing budget, and inquired how many different budgets or reconciliation sheets had been presented to Georgia Rohrs, Program Analyst, LCB Fiscal Division, over the prior two-week period. Mr. Perry replied that he had submitted two or three projections to Ms. Rohrs. Senator O’Donnell then inquired whether Mr. Perry had made the comment that the information provided to Ms. Rohrs in the past was “garbage.” Mr. Perry did not recall making that specific comment, however, did inform Ms. Rohrs that he was in possession of better information.
Senator O’Donnell called the committee’s attention to Exhibit C, decision unit M-400 Insurance Plan Changes, which depicted total revenue needed as $1,881,778 in FY2002 and $3,214,065 in FY2003, as the net effect or net change. According to Senator O’Donnell, when the original budget was crafted and submitted to the Governor by the PEBP, the increase of $1,881,778 was not included, nor was the increase of $3,214,065. Mr. Perry concurred that those increases were not included in the original budget submitted to the Governor. Senator O’Donnell stated if the payroll for the state agencies represented in The Executive Budget was reviewed, it would be ascertained that the money needed to make the payments that would equate to $1,881,778 and $3,214,065 was not included in agency budgets, nor was the Governor aware of those figures. Mr. Perry explained that he had calculated an increase in participants’ contribution to offset the increases. Senator O’Donnell asked how much of an increase had been calculated for the participants’ contribution. Mr. Perry stated, at the current time, he could only estimate what that contribution increase would entail, because rates would not be set until the end of the calendar year. Senator O’Donnell then inquired whether Mr. Perry had advised the Governor of the increase in rates to participants. Mr. Perry stated he had been in communication with the Budget Division. According to Senator O’Donnell, the Budget Division should then be aware that an increase was anticipated, which could amount to approximately $11.50.
Mr. Perry explained that the PEBP also projected an additional $4 million to $6 million carry-forward from the current budget that was not included in the calculations for decision unit M-400. Senator O’Donnell stated it was his understanding at the present time that if the PEBP did not increase the participant contributions, it would result in a $5 million to $6 million “hole” in the budget, which was predicated on the misinformation, or erroneous information originally presented to the Governor. Senator O’Donnell indicated that, while it was understood Mr. Perry was simply the “messenger,” the committee wanted to send a very strong signal to the Board of the Public Employees’ Benefits Program. Senator O’Donnell stated the PEBP could not simply submit an original budget that anticipated no increases to the Governor, who in turn built an entire budget and payroll system around that fact, and then submit a budget to the legislature which included a $5 million to $6 million cost to state government, without first advising the Governor.
According to Senator O’Donnell, at the February 2, 2001, budget overview hearing, the PEBP presented a balance sheet which indicated that as of November 30, 2000, it had a total fund equity of $1,272,881. On February 23, 2001, the PEBP delivered a revised balance sheet to LCB staff, which represented a fund deficit as of November 30, 2000, of $2,232,597. Senator O’Donnell requested clarification regarding the “swing” in those figures within that three-week time frame. Mr. Perry stated those figures were based on interim financial information, and as he reviewed the system, he found there were additional controls which needed to be put into place in terms of generating financial statements. Before issuing the initial statement, Mr. Perry stated he had consulted with the PEBP’s outside Certified Public Accountants (CPAs), along with others agencies. It was, however, discovered that an error had occurred, which consisted of payables not included in the original statement, hence the second balance sheet and the aforementioned “swing” in figures.
Senator O’Donnell noted that when the PEBP failed to make the payments on claims, the participants were subsequently “hounded” by their medical providers for payment. A few years ago, a major problem arose because of that very same situation, and Senator O’Donnell indicated the numbers still did not match, misinformation was being provided to the legislature, and he wondered whether the PEBP was going to be able to gain control of the situation. Mr. Perry replied in the affirmative, and clarified that the figures under discussion did not consist of payments to providers; he stressed that those payments were current. Basically, stated Mr. Perry, he would gain control of the situation and, in fact, would issue new financial statements to LCB staff later that same afternoon. According to Mr. Perry, he was in the process of installing a small general ledger software package that would assist with the situation. Mr. Perry had been working with the PEBP’s staff to ensure that the process operated more smoothly, and he was positive that the PEBP would do a much better job of reporting to LCB staff. Mr. Perry emphasized that the PEBP was timely in paying bills for participants.
Senator O’Donnell asked what action would be taken to compensate for the approximately $6 million “hole” in the budget. Electing to respond was Jim Manning, Budget Analyst, Budget Division, who reported he was not aware of the approximately $6 million “hole” in the budget. Mr. Manning stated when he reviewed the revenue stream for the budget, based on all considerations provided by the actuary regarding other than state contribution costs, which were broken down by Consolidated Omnibus Budget Reconciliation Act (COBRA) participants, non-state retirees, dependent coverage, the amounts projected by the actuary, and the amount built into the budget at the determined state contribution rates, it appeared that the revenue projections in the budget would be met. According to Mr. Manning, he had conducted a reanalysis of the contribution rate and the revenue it would generate, and compared that against the other revenue streams which affected the total premium revenue in the budget.
Senator O’Donnell once again referenced the increase of $1,881,778 in the first year, and $3,214,065 in the second year of the biennium, and requested clarification. Mr. Manning reported that the Budget Division used assumptions when the budget was originally built, which were based on very limited information. The division attempted to ascertain the appropriate contribution rate based on the amount of information available regarding current participants, and what the need would be, based on current budget dollars and current full‑time employees. Per Mr. Manning, after the review and adjustments, the Budget Division arrived at an amount, which he did not feel was too far off. The information had been updated, and Mr. Manning indicated it was accurate based on the information received from the agencies and the actuary; Mr. Manning reiterated that the figures were viable.
Senator O’Donnell asked whether there was an increase in premiums built into the PEBP budget for FY2002-03. Mr. Manning reported there would be a decrease in current premium rates for FY2002, and the figures did represent an increase in rates for FY2003. Senator O’Donnell requested further clarification. Electing to respond was John P. Comeaux, Director, Department of Administration, who stated he did not feel Mr. Manning understood what premium rate Senator O’Donnell was referencing; Mr. Manning’s response was in connection with the state contribution rate. Senator O’Donnell surmised there were two rates; (1) the state contribution which had to be built into the state payroll; and, (2) dependent coverage premiums. Senator O’Donnell indicated he was referencing the state contribution. He stated that Exhibit C, presented to the committee by the PEBP, indicated in decision unit M-400, Insurance Plan Changes, that there would be a $1,881,778 and a $3,214,065 increase in the number of dollars necessary to make the PEBP whole. Senator O’Donnell noted that Mr. Perry testified that an increase in premiums would be necessary to cover that cost.
Mr. Perry indicated that the costs were reviewed, and the necessary premium was derived from that review. He realized that making an adjustment late in the budget process was not prudent, because the entire budget had been built based upon the contributions. According to Mr. Perry, the state contribution rate would decrease slightly in the first year of the biennium, and would increase slightly in the second year. That disparity was caused by more acceptable HMO costs going forward because of negotiations and shifts in plan participants. When the PEBP estimated what contribution would be required for employees who also covered dependents, or chose HMOs, those were included in the original budget presentation. Mr. Perry explained that when the budget was reconfigured and the costs were shifted, it became apparent that there were not enough additional costs to cause an increase in the subsidy from the state. The PEBP also looked at the fact that current projections estimated a $4 million to $6 million carry-forward from the current budget. Given those facts, Mr. Perry stated the PEBP did not want to request increased state subsidies. Mr. Perry stated he could not advise the committee that individual contribution rates would increase by approximately $11 per person, because at the end of every plan year, the PEBP reviewed the claims actually submitted. According to Mr. Perry, the PEBP had enjoyed a very good year, which would keep the costs lower. Because of that, Mr. Perry stated, unless something unseemly occurred within the next four months, the PEBP would have the approximately $6 million carry-forward from the current budget, would not be required to increase individual rates, and would maintain the current state subsidy rate. Mr. Perry stated the PEBP did not want to approach the Governor or the legislature to request additional monies, if at all possible.
Mr. Perry had represented that an extra cost of $1,881,778 for FY2002 and $3,214,065 for FY2003 would be required to cover claims over the upcoming biennium, however, Senator O’Donnell indicated it was now being brought forward that such an increase was not built into the state payroll. Mr. Perry concurred, and stated that the current estimates provided to LCB fiscal staff regarding the average contribution rate for participants did include that increase; he noted that if projections did not hold up for the current budget, that estimate would not stand.
Ms. Giunchigliani stated the actual state premium for FY2001 was $368.75, and asked what drove that figure down for the FY2002 projected budget to $357.50, with a commensurate increase in FY2003, when all the factors indicated there would be an increase in both the general costs of the plan, and also in the number of participants. Mr. Perry explained that the PEBP had seen a steady increase in the amount of claims, along with an increase in the amount paid for medical expenses, however, there had been a decrease in HMO and outside administrative costs, simply because contracts had been renegotiated, and participants had switched from HMO plans to the Self-Funded Plan. Ms. Giunchigliani noted that the PEBP projected the same number of state employees over the biennium, which she felt was ridiculous.
According to Ms. Giunchigliani, the state mandated that HMOs increase the co‑pay from $3 to $15, and directed that the premium be lowered by 9 percent. The state then added a surcharge to the HMOs in the north, which prevented them from bidding on the program; she asked Mr. Perry whether that was correct. Mr. Perry indicated he would have to conduct some research into that matter before he could comment. Ms. Giunchigliani also requested clarification regarding premium subsidies, because the state had apparently directed the HMOs to cut premiums by 9 percent, and the new cost would be approximately $193, however, the state was still collecting the entire premium; the question remained regarding what was being subsidized. If the PPOs were being subsidized, Ms. Giunchigliani commented that she would find that problematic.
Mr. Perry introduced Lew Emanuelson, Vice President and Health Practice Leader for the Denver Office, The Segal Company, who explained that what had occurred was a “risk mix” calculation, rather than a surcharge, which basically leveled the playing field in terms of HMO rates, so there would not be the selection against the Self-Funded Plan. Mr. Emanuelson further explained that it amounted to an age/sex demographic adjustment, which was a common practice. He noted that the process had been initiated approximately 10 to 15 years ago, when federal qualified HMOs were mandating and risk-skimming self-funded plans, which caused extreme losses to those employer self-funded plans. Mr. Emanuelson reiterated that it was a very common practice, and leveled the playing field so that HMOs could not become financially advantaged over the self-funded plans. Ms. Giunchigliani asked whether a financial advantage could be created for a PPO, because it would be subsidized by an HMO. She noted the HMOs used experience-rated methodologies for rate filing, which should already include the age/sex factor. Mr. Emanuelson replied that depending upon the HMO, they might rely on their community experience, and might also make adjustments for the age/sex factor, as well as the single-family mix of the groups, to determine their rates. The HMO rates were not necessarily determined based on the actual experience of the individual members, such as the determination used by the state employee group.
Ms. Giunchigliani suspected that the HMOs did use an experience-rated methodology which included that mix and would, therefore, add another factor that would skew the numbers. Mr. Emanuelson reiterated that he could not speak to the method used by HMOs to set their rates, and stated rates might be set strictly via an age/sex adjustment onto community rates. Ms. Giunchigliani inquired whether there was a difference between the total premium costs and the published rates. Electing to respond was Mr. Perry, who explained that was one of the reasons the PEBP was eliminating the BISON system, and the new system being implemented apparently would give the PEBP the ability to review cost factors and the components comprised for participants. Ms. Giunchigliani asked that the PEBP provide information regarding the cost factors for employee only, employee plus spouse, employee plus child or children, and employee plus family, and provide the state subsidy amount, the employee deduction and/or contribution, versus the Self-Funded Plan premium cost, versus the HMO premium. Mr. Perry stated that information could be compiled, however, it would take some time. Ms. Giunchigliani then asked for information regarding dental and vision plans. Mr. Perry stated the dental plan was an add-on for the HMOs, and the Self-Funded Plan incurred costs from several components which together provided the same services as those available in an HMO.
Ms. Giunchigliani stated that for an employee plus spouse, the current state subsidy was $368.75, the employee deduction was $139.32, and the total premium was $508.07, while the HMO premium for an employee plus spouse was $397.35, which left a difference of $110.72, and she wondered what happened to that $110.72, and why the numbers did not quite mesh to the actual costs. Mr. Perry stated he would work with the actuary and provide a report which analyzed the subsidy and premium rates as soon as possible. However, Mr. Perry noted he would defer to the board regarding the question of why the numbers did not mesh, because the board made those decisions, and the PEBP implemented the board’s will. Senator O’Donnell commented that the PEBP provided the information to the board, which then made the decisions. Mr. Perry reiterated that the new computer system, once it was fully implemented, would provide the necessary information regarding premium rates, et cetera.
Senator O’Donnell requested clarification of the 16 percent of annual paid medical claims in the recommended Incurred But Not Reported (IBNR) claim reserve (Exhibit C). Mr. Emanuelson explained that the 16 percent was a Segal Company standard actuarial factor for self-funded plans. The figure of $8,339,367 represented the aggregate reserve estimated to be required in order to fund the “run-out” claims that had not yet been received through the claim system; that figure did not represent an increase. Mr. Emanuelson further explained that the figure represented what The Segal Company felt the reserve should be for the IBNR medical claim reserve, while the total reserve should be $23,453,822, which would cover medical, prescription drugs, dental, and vision claims. Mr. Emanuelson stated the company had been informed there was $19,311,429 currently on hand in the reserve, which would, therefore, net a deficit reserve of $4,142,393. Mr. Emanuelson reiterated that the $19,311,429 was not a Segal Company figure, but rather had been provided by the state as the estimated current reserve.
Senator O’Donnell asked whether those figures indicated that the reserve would be increasing, or that there would be a need to increase the reserve. Mr. Emanuelson stated that the figures indicated both, i.e., there was a need for a reserve, and The Segal Company would recommend that the reserve be increased to $23,453,822. Senator O’Donnell inquired how that would be accomplished when The Executive Budget had been crafted with a 3.1 percent decline in premiums over that of the last fiscal year. Mr. Emanuelson stated The Segal Company would not recommend that the state subsidy be reduced.
Senator O’Donnell asked Mr. Perry whether he was aware of the origin of the 3.1 percent decline in subsidy, when the actuary testified that the reserve should be increased. Mr. Perry reported that the PEBP worked with the Budget Division to arrive at the most fiscally conservative approach possible regarding the subsidy. Mr. Comeaux pointed out that the original budget request from the PEBP included three reserves. The first was an IBNR reserve, which was simply the actuarially calculated value of the claims that had been incurred at the end of the year, but had not yet been submitted, which would approximate two months or 16 percent of claims. The amount of $19,754,129 was the amount built into The Executive Budget as the IBNR level. The other two requested reserves were a fluctuation and a contingency reserve. Mr. Comeaux noted that the fluctuation reserve was basically an amount that would be built into the budget to cover any increases in medical costs over and above the assumed cost of claims. The overall increase had been assumed at approximately 10 to 11 percent.
According to Mr. Comeaux, the contingency reserve was probably for catastrophic claims that might come in over and above the state’s historical level. The bottom line in deliberations when constructing the budget was the determination that the only reserve absolutely necessary, in the Budget Division’s opinion, for the fund to remain on an actuarially sound basis, was the IBNR. Mr. Comeaux stated that was the only type of reserve the fund had operated under historically, except for a brief period of time when the state did allow the fund to carry a contingency type reserve, the funding of which was generated through lower than anticipated claims in previous years, and the fund had basically been allowed to maintain that as an additional reserve. That reserve evaporated during a previous administration fiasco, from which the fund had recovered.
Senator O’Donnell stated the actuary had just testified that he felt the reserve should be increased, and asked whether the Budget Division arbitrarily picked a 3.1 percent decline in the state’s contribution to the PEBP in order to save money in the budget. Mr. Comeaux stated that was not what had been done. Senator O’Donnell inquired whether the 3.1 percent decline in subsidy was calculated via the old method of determining the reserve requirements, when earlier testimony indicated a three-tier reserve was desirable. Mr. Comeaux indicated the reason the state should have the other two types of reserves, the fluctuation and contingency reserve, was because it was a volatile business with costs rising and falling, and claims experience varied. The determination had been made that it was not necessary to maintain the additional reserves, and Mr. Comeaux explained that should claim costs be much worse than budgeted for, i.e., a 30 percent increase rather than the 11 percent built into the budget, which would eat up the IBNR reserve and cause a cash flow problem, when the legislature reconvened in February 2003, it could address those problems. Mr. Comeaux pointed out that the state basically funded an IBNR that was slightly less in the past at approximately 1.8 months, and the current IBNR was approximately 2 months. The state contribution was at the necessary level to generate the revenue needed to pay claims and fund the recommended IBNR reserve level.
Senator O’Donnell felt that was the heart of the issue, i.e., if not enough was available in the IBNR reserve, payments would not be made to medical providers because of the cash flow problem. However, state employees who filed claims during such a time frame would be “hounded” by medical care providers for payment since the insurance had not paid because of cash flow problems. Senator O’Donnell stated the legislature had dealt with that same issue during the past two sessions. It appeared that the same problem would again occur. Mr. Comeaux indicated that the recommended budget under consideration by the committee was, from a funding standpoint, adequate to pay all claims incurred plus pay all the bills that came in after the end of the fiscal year, which had been incurred as of the end of that fiscal year. According to Mr. Comeaux, it was the state’s intention to fully fund the IBNR reserve.
Mr. Emanuelson remarked that there were reserves set up for each coverage, medical, prescriptions, dental, and vision, and there were also reserves for claims fluctuation, as well as contingency reserves. The claims fluctuation obviously, from an actuarial perspective, was to deal with adversity that could possibly occur within the plan, to ensure that the plan was fully funded. The actuary believed it was better to err on the side of caution, and the figure for the total recommended reserves, including the contingency and claim fluctuation reserves, was what the actuary felt would be a fully-funded plan; in the event that should the plan be terminated today, there would be adequate monies left to pay all claims. Mr. Emanuelson noted that there could be claims that went beyond the projection, and the claims fluctuation and contingency reserve would deal with issues such as catastrophic claims, a multitude of claims, and technology changes; there were a multitude of reasons why claims could suddenly vary dramatically from what was previously observed. Mr. Emanuelson explained that was the reason The Segal Company had put together all the reserve figures to generate a reserve recommendation of $23,453,822.
Senator O’Donnell inquired when The Segal Company had presented the numbers to the Budget Division. Mr. Emanuelson explained the report was dated March 9, 2001, and was the calendar year ending analysis of the state’s plan. Senator O’Donnell asked whether there was over $19 million in liabilities on the date the report was created by The Segal Company. Mr. Beers stated that the concern seemed to be with the figure of $19,311,429, which was the total depicted in the assets section of the balance sheet. It was not reflective of net worth if, in fact, those assets were encumbered in any manner, such as accounts payable, notes payable, or loans payable; the committee was attempting to ascertain whether that figure represented the total assets or the net assets after liabilities.
Mr. Emanuelson stated it appeared to be the estimate of assets and reserves as of December 31, 2000. Mr. Beers inquired whether The Segal Company simply used that figure without ascertaining whether it was a net asset or gross asset figure. Mr. Emanuelson explained those figures were provided to the company as assets and reserves that were previously held on that date. Senator O’Donnell felt that the subcommittee was not being told the entire story, or the true story, and he wanted to know whether or not there would be enough money from the payroll accounts to fund the reserve necessary to cover the IBNR. Electing to respond was Mr. Perry, who explained that in the current budget, there would be a $4 million to $6 million carry-forward, if the claims experience continued along the same path. If the program were to immediately stop, it was anticipated that if the claims continued along the path of approximately $7 million per month, given that the PEBP knew what the HMO and administrative costs would be, there would be a carry-forward of $4 million to $6 million into the new budget; that would be dependent upon all factors continuing to move along the same path. Mr. Perry explained that in the current budget, the PEBP funded an IBNR for the first year of $17,503,277, and $19,676,034 in the second year; those were the anticipated figures, and the PEBP would have sufficient funds to maintain those IBNRs.
Senator O’Donnell asked LCB staff whether the figures in decision unit M-400 would track with the current budget figures for salary contributions from the state, or would an adjustment be necessary. Ms. Rohrs indicated she would require more information from the agency, along with additional time to assimilate the final numbers, and to review the projected draws from the assessment process for the state contribution rate. Also, she would need to know what the effect on individual premiums would be as part of the budget. Ms. Rohrs would also request the premium breakdown from the PEBP per Ms. Giunchigliani’s request. Senator O’Donnell asked Ms. Rohrs to work with the PEBP staff, in order to provide the following information: (1) a breakdown of premium costs by the various aforementioned categories; (2) the estimate of the impact on the budget; and, (3) the addition of employees that were not accounted for within the budget, in terms of costs. Mr. Perry stated he did not understand the third request. Senator O’Donnell explained that more employees would be hired by the state, which would impact the PEBP. Mr. Perry indicated the PEBP had been informed by the Budget Division, for planning purposes, that there would not be an increase in state employees during the budgetary period.
Senator O’Donnell asked whether the $4 million to $6 million carry-forward was a valid number. Mr. Emanuelson stated he was recently provided that information, and would request additional time to review that recently provided information, and requested additional time to review those figures.
Ms. Giunchigliani asked whether the pharmaceutical contract would be put out to bid via a Request for Proposal (RFP), or would Merck-Medco continue as the provider. Electing to respond was Michael Oswalt, Quality Control Officer, PEBP, who explained that the board had decided to issue an RFP, which was in the final stages of development, and would be released in early April 2001. Ms. Giunchigliani asked whether there would be any information forthcoming before budgets were closed. Mr. Oswalt opined that the market indicated the increase would not be higher than the projected 22 percent, however, that could not be guaranteed. Mr. Oswalt explained that prescription drugs were not trending down, and explained the current contractor was in the last year of a three-year contract. Mr. Emanuelson stated, regarding prescription costs, there was definitely not a downward trend, and the observed trends were 20 percent to 25 percent over prior costs. Dramatic increases were being seen in the number of new, name-brand drugs, and Mr. Emanuelson indicated if an analysis was conducted, it would reveal that as much as 30 percent of the prescriptions issued to employees were drugs that were not available in recent years. There were opportunities available with some of the pharmacy benefit managers, which would include lower administrative costs, plus rebates on name-brand drugs. Mr. Emanuelson stated The Segal Company typically observed approximately $2.50 in rebates per name-brand drug, and that was part of the issue with the Merck-Medco contract. Senator O’Donnell asked Mr. Emanuelson to provide written comment to LCB staff regarding the $4 million to $6 million carry-forward. Mr. Emanuelson indicated he would comply with that request.
Senator O’Donnell indicated there had been numerous reports and information which suggested some groups wanted to leave the PEBP and secure an independent contract. The proposal had been presented to the board, and Senator O’Donnell wondered what action, if any, was planned, and how that would affect the existing system. Mr. Perry stated any action would be based upon the decision of the board, and an attempt had been made to adopt regulations agreeable to all parties involved. A hearing was held approximately one week ago, however, Mr. Perry was unaware of the resolution or the intention of the board.
Senator O’Donnell asked whether the error rate in processing claims was as high as 30 percent. Mr. Perry stated the year 2000 fourth quarter report from UICI Administrators indicated their claim accuracy was well within the PEBP’s performance standards. Senator O’Donnell then asked about those performance standards. Mr. Perry called the committee’s attention to the performance indicators included in The Executive Budget, which showed that claims processing accuracy was projected at 98 percent for FY2002-03. Mr. Perry stated he had provided LCB staff with the most recent report from UICI Administrators, which indicated claim accuracy was 99.58 percent during the reporting period, thereby meeting the projected criteria of 98 percent.
Senator O’Donnell inquired whether the PEBP had assumed the responsibility of billing and eligibility determinations as of March 1, 2001. Mr. Perry indicated the PEBP was in charge of billing, but not eligibility. Mr. Oswalt reported that as of March 1, 2001, the PEBP had not taken over the responsibility of eligibility, and would assume that duty on April 1, 2001. Part of the reason for that delay involved staff turnover, and a meeting would be held in the near future with UICI Administrators to resolve the issue. Mr. Oswalt further explained that certain issues would need to be addressed prior to assuming that responsibility, such as the micro-imaging system, and training for employees; he also noted staff turnover had proven to be problematic. The PEBP felt it would be prudent to delay acceptance of that duty for one month, which should be a sufficient amount of time.
Ms. Giunchigliani asked why the PEBP was assuming the responsibility of eligibility determination once again, and inquired whether such action would produce a cost or efficiency savings. Mr. Perry replied that such action would result in a cost savings, which would be represented in category 10 of the budget. Ms. Giunchigliani then inquired what the projections were for a savings to the state by assuming responsibility for eligibility and billing. Mr. Perry explained that it was somewhat difficult for him to respond to some issues because of the recent loss of the PEBP’s executive officer. Mr. Perry noted that The Executive Budget was written with UICI Administrators retaining responsibility for billing and eligibility, because a decision had not been reached at that time. The deadline caused by the delay of implementation for one month was fast approaching, and Mr. Perry did not feel that the eligibility responsibility would be assumed by the PEBP by April 1, 2001. The PEBP had experienced considerable turnover in its base staff, which created a situation where the PEBP was moving as fast as it could toward implementation, but wanted to ensure it was done correctly.
Ms. Giunchigliani stated that, while she could appreciate the plight of the PEBP, she did not want the legislature facing another $40 million bailout for the plan, and wanted to ensure that state employees were receiving the coverage they were entitled to. Ms. Giunchigliani wondered whether it was time to review the possibility of privatizing the state insurance, rather than continuing it as a state function. She noted that the board of the PEBP was not trained, and it might be time to research the possibility of privatizing.
Senator O’Donnell felt that the issue should be resolved, whether it was privatized or remained under state control. He remarked that the presentation of the PEBP budget was one of the worst, unprepared, disorganized presentations he had ever chaired. Senator O’Donnell indicated if that was the message that needed to be sent back to the board, so be it. According to Senator O’Donnell, the PEBP could not continue to hide information from the legislature, and commended Ms. Rohrs for her diligence in assimilating the necessary information for the subcommittee. Senator O’Donnell requested the PEBP’s staff to, once again, meet with LCB staff in order to produce viable information for the subcommittee, which might be forced to make difficult, but necessary, decisions. However, before that could be done, the subcommittee needed to be in receipt of all pertinent information. Senator O’Donnell requested a time frame that PEBP felt would be sufficient to assimilate the requested information. Mr. Perry felt he could provide the necessary information to LCB staff within a time frame of one week. Senator O’Donnell announced that the budget would be held in abeyance until all information could be assimilated.
Senator O’Donnell indicated the subcommittee would accept public comment regarding the PEBP, and invited interested parties to come forward.
James Richardson, representing the Nevada Faculty Alliance, stated he appreciated the effort put forth by both the subcommittee and the PEBP. The alliance appreciated the effort expended over the past two years to put the plan on a more solid footing. Mr. Richardson stated the alliance did have some concern regarding the financial aspects of the plan, and understood the philosophies that were driving some changes in the plan. The alliance would also support the notion of leveling the playing field and encouraging more participation in the self-funded plan. Mr. Richardson noted the alliance was concerned about the finances, and was well aware of the fact that the state would back the plan financially should it be necessary. He reminded the subcommittee that a biennium with level contribution rates was what had preceded the last “bailout” by the legislature.
Mr. Richardson commented that there had been an extremely large jump in the per-month employee contributions by nearly $100, and it was certainly conceivable that the jump was a way to ensure that the plan would remain on stable footing. According to Mr. Richardson, members of the alliance would like the legislature to review the contribution rates, because there had been some significant changes in the plan, some beneficial, and some problematic, i.e., the dramatic increase in co-pays and pharmacy costs. Mr. Richardson explained if a participant chose an HMO in northern Nevada, he would be required to pay an additional $75 per month. There was a problem in northern Nevada where, basically, the HMOs had been in charge of the game because there was so little competition, which created an issue of cost and contraceptive care. Nonetheless, the alliance felt that the situation set an extremely bad precedent and there should be a serious effort made to adjust the cost and find ways to avert such a problem in the future to ensure that HMO participation in the north did not cost state employees extra money. Mr. Richardson noted that created an “equal treatment” problem, because a state employee in southern Nevada who chose an HMO was not required to pay the additional monthly cost.
Mr. Richardson said he was astonished to learn that 920 employees in northern Nevada had, in fact, chosen the HMO option, which illustrated the popularity of that option. Mr. Richardson stated there was some concern regarding the retiree issue, and noted the idea of separately rating retirees was of concern to the alliance, because such action could very quickly price retirees out of the market. The alliance urged the subcommittee to review that issue. Mr. Richardson indicated that as the committee reviewed the financial impact of groups leaving the state health plan, and the law did allow that option, such groups should not be allowed to leave at a cost to the remaining participants. The integrity of the state health plan should be maintained for the employees who remained in it, and the committee should keep in mind that such action could, in fact, impact the cost factor. The law allowed for a cost increase of up to 5 percent to either the state or the remaining participants if a group left the health plan, which would drive up dependent and retiree costs.
Ms. Giunchigliani stated that she remained concerned, and she wanted to send a message to the board that she still had not received an answer regarding why, in her opinion, the board drove the HMOs basically out of the northern part of the state, both with the surcharge, as well as directing that co-pays be increased, while decreasing rates. Ms. Giunchigliani stated that action caused HMOs to leave northern Nevada, thereby eliminating options for state employees. According to Ms. Giunchigliani, the St. Mary’s Health Plan should not have been allowed to bid, because it would not cover some state-mandated programs, including contraceptives.
Mr. Richardson stated that was a tough philosophical and financial issue, which he did not fully understand. It was a fact that there had been considerable selectivity toward the HMOs over the years, and there were those who felt the HMOs had been doing very well compared to the self-funded plan. Mr. Richardson stated if HMOs attracted a large number of young, single, healthy people, while the self-funded plan was stuck with the families and retirees, that would harm the self-funded plan and its participants. He felt that was what was being referred to as the demographic shift. The lack of competition in the north created a terrible predicament, and Mr. Richardson stated the precedent of state employees being asked to pay an additional $75 per month put the state at a remarkable disadvantage in competing for, and retaining, good employees. He provided the subcommittee with two compensation charts from the Department of Personnel’s salary survey report, Exhibit D.
Ms. Giunchigliani stated there had been approximately 5,000 or 6,000 employees enrolled in HMOs in the north who no longer were enrolled. The approximately 1,000 employees who remained in the HMOs probably remained because of the options offered. Ms. Giunchigliani felt there should always be an option for an employee to have a choice, and it seemed that the market had been purposefully closed.
Gary Wolff, representing the Nevada Highway Patrol Association, and the Teamster’s Union, Local 14, advised the subcommittee that the board’s regulations had been overturned by the Legislative Commission on three separate occasions because those regulations did not comply with legislative intent. The regulations written by the board were totally contrary and would disallow the association to exit the system, because the group it wanted to leave with was under a Taft-Hartley Trust. The issue was in the process of being considered by both the Assembly and Senate Government Affairs Committees. Mr. Wolff stated the association had been living in frustration for approximately 18 months, and he explained that at the PEBP board meetings, no questions were accepted, and public comment could only be made after the fact. Mr. Wolff indicated the board of the PEBP had been asked to meet with legislative subcommittees in an attempt to resolve the issue, however, then went forward and authored three additional regulations. The board also publicly stated it was a separate entity or executive branch, and was not required to follow legislative intent.
According to Mr. Wolff, the board had continually pitted the retirees against active employees, and the association was suffering a loss of employees, not only because of salaries, but also because of benefit packages. The PEBP was now asking employees in the north to pay an additional $75 for an HMO, which was not required of southern region employees. Mr. Wolff reported that he was a state retiree and had chosen the St. Mary’s HMO plan, because the Self-Funded Plan was “eating him alive” in medical costs. Mr. Wolff’s cost for the HMO was $259 per month, which provided full coverage, yet an active state employee was required to pay $443 per month for the same coverage.
Mr. Wolff stated it was strange that the Teamster’s Local 14, which operated under the Taft-Hartley Trust, could insure 9,000 municipal and county employees in Clark County and charge one rate of $425 per month, which included the spouse and up to ten children, while the state had a “spider web” of rates within its system. Mr. Wolff felt one of the major problems was communication, and explained the association had offered the assistance of its trust attorneys to work with the board over the past approximately 18 months, and had approached the Governor twice. The Governor had asked the association to work with the board, to no avail. According to Mr. Wolff, there was no secret why the association wanted to leave the group.
Senator O’Donnell stated the legislature had bailed out the board during the last session because it was discovered the board was under-funded and, contrary to the board’s belief that they were a separate entity, it had to approach the legislature for the approximately $40 million bailout. Mr. Wolff noted that had the legislature not bailed out the fund, many participants would have suffered bankruptcy because of medical costs. Mr. Wolff explained he had received numerous billings from doctors who had performed his surgery, and eventually felt so guilty he simply paid the bills. It took over six months to rectify the insurance payment. Mr. Wolff emphasized that the system was not “fixed” by any means, and he could produce participants who could tell horror stories about the system today.
Martin Bibb, representing the Retired Employees of Nevada, stated he would echo previous testimony that indicated it was impossible to get a handle on the numbers. Per Mr. Bibb, the Retired Employees of Nevada had been an organization since 1976, largely formed in an attempt to address the health care concerns of retired public employees in Nevada. Over the past two years, health care had become a serious crisis for the organization. Mr. Bibb stated one particular recommendation he would put forth, as the subcommittee awaited additional information and pondered the issue, was to review one of the recommendations to consolidate Budget Account 1368, Retired Employees’ Group Insurance into Budget Account 1338, Public Employees’ Benefits Program. To incorporate retiree numbers into the mix would not be appropriate at the current time, since it appeared impossible to get a handle on the numbers for Budget Account 1338. Mr. Bibb said such action might be appropriate at a later date, but since current numbers and costs could not be provided to the subcommittee, it would be inappropriate to combine the accounts. According to Mr. Bibb, some of the number challenges facing the retired employees were included in the August 2000 Segal Company study report, which was comprised of a fiscal year study for the period ending June 2000 relative to the plan. The report indicated that state retirees cost $1.09 in benefits for every $1 in premiums they generated. In recent weeks, testimony from staff revealed that the figure was actually $1.11 in benefits for every $1 generated; however, the most recent Segal report, released approximately two weeks ago for calendar year 2000, depicted $1.24 in benefits for every $1 in premiums generated. According to Mr. Bibb the difference in those figures was, if not significant from an actuarial standpoint, certainly sizeable, and he wondered which figure was correct.
A review of the non-state retiree group indicated that the study revealed as of August 2000 those retirees actually saved the program money, costing $0.93 in benefits for every $1 in premiums generated. Mr. Bibb stated the numbers referenced in the March 2001 Segal Company study indicated early retiree and Medicare retiree costs were approximately $21 million, and retiree subsidy and contributions were approximately $16 million, a difference of approximately $4.7 million, although the report indicated retiree costs were projected to be subsidized by approximately $6.5 million. Mr. Bibb stated that at some point, all concerned parties would have to agree upon one set of numbers. Retirees were particularly concerned because of the “hit” they took in the past via a “carve-out,” which had a tremendous negative impact on retirees. Mr. Bibb stated at the time the “carve-out” occurred, there were $9.2 million in benefit cuts that had to be approved by the legislature in 1999 just to keep the plan afloat, and at that time, $3.3 million of that $9.2 million came solely from Medicare-age retirees, rather than all retirees. The group that comprised 6 percent to 8 percent of all the participants in the plan took a 35 percent benefit “hit,” and it had not yet stopped. Mr. Bibb noted that the plan’s deductible was reduced from $350 to $250, however, prior to that action, although Medicare-age retirees had a $350 state deductible, they were given $100 credit against their federal Medicare deductible by the state plan. Medicare-age retirees would no longer receive the offset against their federal Medicare deductible, so it would not amount to a $250 deductible, but would remain a $350 deductible for those participants. Mr. Bibb felt that was another example of Medicare-age retirees taking a “hit.”
Mr. Bibb stated it was important to review the reasons why the Self-Funded Plan was originally created, when it was stated that premium costs for group life, accident, or health insurance for persons retired from state service would be computed as part of the total group insurance plan costs and not as a separate cost entity within the plan. That had changed, and Mr. Bibb indicated the August 2000 consultant study recommended that retired state and retired non-state employees might be grouped together, which was not a group insurance pool in the traditional sense, i.e., active employees and retired employees, along with a spread of risk and premium based upon age differences. Mr. Bibb had been told that there was a “blended” rate for retirees, but it did not appear to be an evenly “blended” rate. Even in the year of the “carve-out,” both the active and retired state employees’ groups were given the same rate of increase. For the current year, active state employees received a 4.3 percent rate increase, while retired state employees under the “blended” concept, received between an 11 percent and 12 percent rate increase.
According to Mr. Bibb, of great concern to retirees was that they continue to be pooled with active state employees in the plan, as was originally intended. If retirees were pooled only with other retirees, it would cause unaffordable insurance premiums. Mr. Bibb indicated that a return to a coordination of benefits for Medicare-age retirees, where Medicare paid the first 80 percent, and the state plan paid the remaining 20 percent, should also be considered. There were many other areas of concern such as pharmaceutical, co-pays, and HMOs. Quite frankly, Mr. Bibb indicated, retirees were not gleeful about the notion of privatization of the insurance plan, but at the same time, were not pleased with the state’s Self-Funded Plan, which seemed to be making dramatic philosophical departures from the original intent at inception of the program. Mr. Bibb would applaud the subcommittee’s tenacity in digging in and attempting to get to the bottom of the issue. Testimony presented in 1983, when the Self-Funded Plan was created, indicated that retirees should not be rated as a separate group. The legislature had, on many occasions, denied the request of various groups that asked to be rated separately, because the Self-Funded Plan was initiated as a group program and should be rated in that manner; retirement should be considered an extension of state service.
Mr. Emanuelson stated he would like to comment on Mr. Bibb’s remarks regarding the benefit costs and premium costs for retirees, as indicated in The Segal Company’s report. According to Mr. Emanuelson, the figures in the report should be regarded as numbers which were calculated at a certain point in time, and with available information. While he did not have the report for fiscal year ending June 2000, he could provide numbers for the 12-month period ending December 31, 2000. The numbers quoted by Mr. Bibb that retirees cost $1.24 for every $1 in premiums were based on actual medical claims, prescription drug claims, administrative costs, and was measured against the total income received by the plan. Mr. Emanuelson reiterated that the fluctuation in numbers was because of the changes in claims and income in the reported period of time.
Ms. Giunchigliani stated if that was the case and month-to-month adjustments were made in the figures regarding retirees, could the same set of figures be compiled for active employees. The figures in the report contained in Exhibit C solely segregated retirees, and it might be more telling to see whether there was a trend affecting both groups. Mr. Emanuelson explained that the report did break down the costs for both groups, and for the period up to December 31, 2000, the costs were approximately $0.85 of claims and expenses versus that of income for the active participants. Ms. Giunchigliani requested copies of the report which depicted the figures for the active participants. Mr. Emanuelson indicated he would provide the requested copies.
Robert Gagnier, Executive Director, State of Nevada Employees’ Association (SNEA), stated he would like to propose an addition to the budget for the PEBP, in the form of an additional position for a Public Information Officer II, Grade 37, with a salary of approximately $42,000 per year, plus benefits and related costs. Per Mr. Gagnier, he had previously relayed the SNEA’s interest in such a position to the former executive officer of the PEBP, and also to the board. The SNEA felt that, while the system had done a great job recently in communicating with small groups, there was no way to communicate with all persons who participated in the program. The SNEA thought there should be better communication, and felt that such a position would be beneficial to all participants in the program through better and more understandable communication. Mr. Gagnier referenced the Retiree Health Care Study contained in Exhibit C, prepared by The Segal Company, which he felt should raise red flags and if no action was taken, noted that there would be problems. It was assumed that the state pre-funded its retirees because there was a budget allocation of 1.2 percent of payroll to pay for retiree insurance, which was the direct subsidy provided by the state. According to Mr. Gagnier, that was not pre-funding, but rather was the actual amount necessary to pay the current costs of the direct subsidy for retirees. He stated what was needed was a complete study of long-term methods for funding retiree health insurance.
Mr. Gagnier reported there was legislation under consideration that would pay a portion of the insurance for school districts employees, an issue which the SNEA had studied a few years ago. The problem was that some entities provided better retiree subsidies than other governmental entities, and the only solution would be a leveling solution, i.e., making all subsidies the same. Mr. Gagnier noted that the SNEA, as well as other local government entities, was not willing to utilize the leveling solution. It appeared that the most logical method of addressing the problem would be through the Public Employees’ Retirement System (PERS). Mr. Gagnier reiterated that some action needed to be taken if the state was going to accept the figures contained in The Segal Company report (Exhibit C), because the ratio of active employees to retired employees was predicted to drop from 3.23:1 to 1.66:1 in less than 20 years. Mr. Gagnier likened the situation to Social Security, where the problem appeared to be too few active employees and a large group of retirees.
With no further public comment forthcoming, Senator O’Donnell announced that the remaining budgets on the agenda would be rescheduled because of time constraints, and adjourned the hearing at 10:22 a.m.
RESPECTFULLY SUBMITTED:
Carol Thomsen
Committee Secretary
APPROVED BY:
Senator William R. O’Donnell, Chairman
DATE: